City Schools Lost Millions in Food Deals, Report Says

By ELISSA GOOTMAN

Published: February 5, 2004

The city school system wasted tens of millions of dollars on food contracts in recent years because of flawed bidding procedures, employee misconduct and a lack of proper oversight, according to a report released yesterday by the special commissioner of investigation for the school system.

The report, compiled over the past year and a half, found that at least two education officials accepted gifts from vendors, including laptop computers and packages of meat, then lied about it to the Federal Bureau of Investigation.

Schools Chancellor Joel I. Klein praised the report and said the department was already changing how it handles food procurement contracts. He said one employee cited in the report would be fired based on its findings.

The report stems from an investigation by the Antitrust Division of the Justice Department, resulting in bid-rigging charges against more than a dozen food vendors. When those charges were announced, nearly four years ago, Chancellor Klein was the assistant attorney general in charge of that division.

"This money should have been spent on the schoolchildren of New York, not to line the pockets of greedy vendors," he said at the time.

In a telephone interview yesterday, the special commissioner of investigation, Richard J. Condon, said the Department of Education, which has spent roughly $100 million annually on food in recent years, had wasted as much as $8 million to $10 million a year because of the flaws cited in his report. What his office could not definitively establish, he said, was whether the waste was the result of corruption or incompetence.

"Either they didn't understand what they were doing, or everyone thought it was someone else's job to do it, or they just didn't care," Mr. Condon said. "But the end result was that the department spent a lot more money than they should spend."

Mr. Condon's report found that the department's Office of School Food and Nutritional Services gave vendors wildly inaccurate estimates regarding how much food it would need, leading to several problems, the central one called lowballing.

Every year, the school system receives relatively predictable amounts and types of donated food from the state and federal governments. The report found that when the department prepared bid materials, it grossly overestimated the need for certain foods, like a fish-and-cheese dish, that are normally donated. Companies would then submit unrealistically low bids for those particular foods, knowing they would most likely not have to provide them. As a result, they could overcharge for other products.

Over the years, the report found, several companies actually complained about the process. But education officials either denied knowing about it or said they were not responsible, pointing the finger at other divisions in the department, Mr. Condon said.

The report found that one company took particular advantage of the Department of Education, profiting from lowballing and other practices by more than $8 million over two years. The report concluded that the company, H. Schrier &#38; Company of Brooklyn, had a "history of exploiting" the department's bidding procedures, "sometimes deceptively," that was indicative of how it might act on any food contract.

Brian Field, president of the company, said this was not the case.

"We certainly don't view ourselves as exploiting anything," he said. "As far as we're concerned, we're putting in a bid to become the low bidder, lower than our competition."

The report noted that the Department of Education had already improved its bidding procedures. Still, it found the new procedures were not flawless. For instance, a decision to virtually ignore companies' price estimates for items that are usually donated prevents lowballing. But it can mean that if the donations do not come through, the company could reap a windfall by having sought exorbitant prices.

"I think what the department is struggling with now is how to bring this under control," Mr. Condon said in the interview. "They're trying to find a way to bid these contracts out where they avoid all the pitfalls that we cite in this report."

Addressing reporters after a news conference on the recent closing of the chancellor's hot line and the transfer of school-related complaints to the city's 311 hot line, Mr. Klein said the department was "ahead of the curve" in solving the problems cited in the report. Referring to his past life as an antitrust prosecutor, he smiled, saying, "I actually know something about this."